Chinese EV carmaker NIO aims to raise $650 million with convertible bond

Electric carmaker NIO Inc, among rivals to Tesla in China, launched a $650 million convertible bond on Wednesday, four months after it listed in New York.

Its move to raise capital via an equity-linked bond mirrors that of China’s Netflix-like video platform iQiyi, which sold a $750 million convertible bond in November after going public last year, and highlights the growing appeal of convertibles for high-growth companies in need of cash.

Convertible bonds are a cheaper funding avenue due to their lower coupons in exchange for giving the bondholder the option of converting the debt into company shares at a set price in future. The equity link gives investors fixed returns and the prospect of profiting from a rise in the issuer’s share price.

NIO was marketing a five-year convertible bond with a conversion premium of between 27.5 percent and 32.5 percent, according to a term sheet seen by Reuters.

The Shanghai-based EV startup could raise as much as $750 million if a greenshoe, or over-allotment option, was exercised.

The company’s shares closed at $6.94 on Tuesday and were up about 16 percent since they started trading in September.

Convertible bonds are booming in Asia, hitting their highest volumes last year since the financial crisis, with $35.5 billion raised, according to Refinitiv data.

Their appeal is growing at a time when interest rates are rising, driving up borrowing costs when companies in Asia face almost $500 billion in maturing dollar-denominated bonds over the next two years.

For tech companies or startups, which can have more volatile stock prices and are often unrated, convertible bonds also represent a cheaper funding alternative than straight debt.

China is the world’s largest and fastest-growing market for new-energy vehicles (NEVs), a category comprising electric battery cars and plug-in electric hybrids, but competition is fierce as Beijing looks to rein in subsidies that led to a huge array of EV contenders entering the market.

NIO’s revenue and deliveries of its electric SUV soared in the third quarter of last year.

It plans to use the proceeds of the convertible bond for research and development, development of manufacturing facilities and sales and marketing.

Bank of America Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley and UBS are joint bookrunning managers for the deal.

Reporting by Julia Fioretti; Editing by Jacqueline Wong